When conducting investment research, it is often desirable to compare financial data for similar securities to better inform decision making. For example, investors may desire to compare market capitalizations, price to earning ratios, cash flow, operating efficiencies, projected growth, or other information for similar securities in order to determine whether to buy, sell, hold, or take some other action with respect to one or more securities. This type of analysis, often referred to as comparable analysis or peer analysis, is sometimes provided as a service of Financial Information Products that deliver news and financial data to clients.
As an example, one method of identifying peers relative to a given security provides users with manual control over peer identification. For example, a user may manually enter ticker symbols for securities to be compared into a Financial Information Product interface. Data for the specified ticker symbols may be retrieved, and the data may be displayed side-by-side (or according to some other configuration) in the interface for the user to view and analyze. One disadvantage of this method, however, is that investors may not be aware of all sectors, industries, business models, and other information for potentially thousands of securities, and the securities must be filtered and identified manually. This introduces other disadvantages, such as a greater likelihood of error, as investors may mistakenly believe securities are related or unrelated, or the investors may not be aware of all potentially relevant securities. For example, error may occur because manual peer identification may be over-inclusive (e.g., securities in similar sectors may have distinct products lines that do not compete in the marketplace) or under-inclusive (e.g., securities may be left out because an investor is unaware of a comparable security).
Another method of peer identification relies upon third-party classification schemes such as the Global Industry Classification System (as provided by Morgan Stanley Capital International and Standard & Poor's), the Financial Times Stock Exchange scheme, offerings by Dow Jones, and others. Generally, these schemes tend to organize securities by mapping each security into a hierarchy based on various factors, such as region, sector, industry, or other criteria. For example, the Global Industry Classification System organizes securities hierarchically according to one or more regions, where each region includes one or more sectors, each sector includes one or more industries, and each industry includes one or more securities. In some instances, an industry may also include one or more sub-industries. While these classification schemes are able to sort a large number of securities into generally related categories, the hierarchy of securities may be inconsistent from one scheme to another, potentially leaving certain securities out of a comparison analysis. Moreover, securities may be placed into the same category because their products and/or services are marketed in facially similar industries, even though those products and/or services satisfy different niches in the marketplace.
Referring to FIG. 1, an exemplary illustration of peer identification is provided using the Global Industry Classification System. Those skilled in the art will recognize that the specific names, organization, mapping of securities, or other criteria is exemplary only and may change from time to time. The Global Industry Classification System may be organized according to a region 102 (e.g., North America), and every security within a region 102 may be categorized within a Sector 104 (e.g., a particular security may be an Industrial, Material, Financial, Information Technology, Consumer Staple, Telecom Service, Health Care, or other type of security). Each Sector 104 may include one or more Industries 106 and one or more Total Stocks 108. For example, within North America, an Information Technology Sector 110 may include eight Industries 106 and nine hundred seventy-four Total Stocks 108. If an investor is interested in researching comparable securities selects Information Technology Sector 110, the investor may be presented with Industries 112 in the Information Technology Sector (e.g., Semiconductors, Internet Software and Services, Software, or others), each of which may include a number of Total Stocks 114. The investor may be particularly interested in Computers & Peripherals 116, which may include seventy-one Total Stocks 114. However, it may be difficult to perform meaningful comparable analysis across seventy-one securities. Thus, existing Financial Information Products may allow the investor to create, edit, and store lists of securities by selecting one or more Sectors 104 and/or Industries 112, and further limiting, screening, or filtering the number of securities by setting various criteria.
Referring to FIG. 2, a Financial Information Product may enable an investor or other user to create, edit, and store lists of securities based on criteria such as market capitalization, growth rate, price to earnings ratio, and/or other screening criteria. This may enable comparative analysis of securities meeting the screening criteria by displaying or otherwise presenting data for the securities and/or aggregate information for the securities. For example, an investor interested in peers for Apple Computer Inc. (AAPL) may set screening criteria to limit a search to securities listed in the United States 218 within Information Technology Sector 210 and Computer & Peripherals Industry 216 with a market capitalization 220 of greater than $5 billion. The search may return a set of results including AAPL 222, as well as eleven other securities 224 for comparison.
While these results provide a reasonable comparison, the results may vary from one classification system to another, screening criteria may vary from one security to another, and the results may include comparables that are not true peers of a primary security. For example, SanDisk Corp. (SNDK) is listed among securities 224 identified as comparable to AAPL 222 because SNDK is classified within Computers & Peripherals 216. However, SNDK designs, develops, and markets flash storage card products used in a variety of consumer electronics, whereas AAPL primarily designs, develops, and markets consumer electronic devices such as personal computers and portable music players, as well as digital downloads. Thus, a financial analyst may find that SNDK is not a good peer of AAPL because their products fulfill different roles in the market. On the other hand, a financial analyst may find that CDW Corp. (CDWC) and Xerox Corp. (XRX) are good comparables for AAPL because they sell similar products to consumers. However, screening methods based on an existing system such as the Global Industry Classification System would not return CDWC or XRX as comparables because CDWC is classified within the Services Sector and Retail Industry and XRX is classified within the Office Equipment Industry.
Existing comparative investment research systems that identify peers suffer from these and other drawbacks.